Dairy Industry Services Reform Bill 2003

Bills Digest No. 117 2002-03

Dairy Industry Services Reform Bill 2003

WARNING:
This Digest was prepared for debate. It reflects the legislation as
introduced and does not canvass subsequent amendments. This Digest
does not have any official legal status. Other sources should be
consulted to determine the subsequent official status of the
Bill.

Passage History

Commencement:The main provisions
commence on Royal Assent. Transitional provisions and amendments to
related legislation commence on Proclamation.

Purpose

The Dairy
Industry Services Reform Bill 2003 ('the Bill') will merge the
Australian Dairy Corporation ('ADC') and the Dairy
Research and Development Corporation ('DRDC') into
a single, privatised company by:

Converting the ADC from a statutory authority to a Corporations
Act company limited by guarantee and controlled by dairy farmers as
its members, to be known as Dairy Australia Limited ('Dairy
Australia');

Transferring the assets and liabilities of the DRDC to Dairy
Australia; and

Providing for the transfer of DRDC staff to Dairy Australia,
with protection for their rights and entitlements.

In the late 1990s corporatisation and
privatisation received renewed attention under the National
Competition Policy and the Competition Principles Agreement among
the Commonwealth and State and Territory Governments.(1)
There has been a particular focus on review of legislative
arrangements and privatisation of agricultural marketing and
research and development bodies.

The current Bill follows a series of Acts passed
in recent years that deal with privatisation or corporatisation in
the Agriculture, Fisheries and Forestry Portfolio. These are:

the Wool Industry Privatisation Act 2000

the Horticulture Marketing and Research and Development
Services Act 2000 and Horticulture Marketing and Research
and Development Services (Repeals and Consequential Provisions) Act
2000

the Pig Industry Act 2001, and

the Egg Industry Service Provision Act 2002.

All of these Acts seek to transfer control over
marketing and research and development activities from government
to industry participants. They provide for private control in
relation to the use of participant levies whilst retaining an
element of public control in relation to the use of government
subsidies. More detail appears in Bills
Digest No. 52 1999-2000, No.
58 1999-2000, No.
93 2000-2001 and No. 40
2002-03.

The ADC is one of six national bodies
representing the various production, manufacturing and marketing
sectors of the Australian dairy industry. Each body has different
but complementary functions. The Australian Dairy Industry Council
(ADIC) is the industry's peak body and represents all sectors of
the industry to the Australian and international governments. It
also co-ordinates industry policy for its three constituent
organisations: the Australian Dairy Farmers' Federation (ADFF), the
Australian Dairy Products Federation (ADPF) and the Market Milk
Federation of Australia (MMFA). These three organisations look
after the national policy interests of the three key industry
sectors dairy farmers, dairy product manufacturers and liquid milk
processors.

The ADC is a statutory authority operating under
the Dairy Produce Act 1986. Its role focuses on industry
marketing services and the regulation of financial support to the
dairy industry. It is complemented by the Dairy Research and
Development Corporation (DRDC). The DRDC is also a statutory
authority. It is established under the Dairy Research and Development Corporation Regulations
pursuant to the Primary Industries and Energy Research and
Development Act 1989. The DRDC is the research management arm
of the industry. It invests around $30 million a year in research
and development. These funds are drawn from levies paid by farmers
and matching government funds.

The proposal in the current Bill dates back to
meetings of a large number of dairy industry leaders, including
dairy company CEOs, held in 2000 to discuss possible future
industry services, structures and funding mechanisms.

As a result of these meetings a draft structure
was outlined at the December 2000 AGM of the Australian Dairy
Industry Council. The matter was further developed during 2001 and
broad agreement on a proposed set of arrangements to put to
Government was reached in December 2001.(5)

In August 2002, the Government amended the
Dairy Produce Act 1986 so the ADC could fund the
involvement of the Commonwealth, the DRDC and the dairy industry in
a consultative process, along with the provision of advisers to
assist in the investigation of the best options for reform. The
Minister for Agriculture, Fisheries and Forestry, The Hon Warren
Truss, said that the dairy industry had approached the Government
with a proposal that would see the two statutory authorities, ADC
and DRDC, become one Corporations Law company, directly accountable
to their levy paying members.(6)

Following the completion of the consultation
process, the Government announced in December 2002 its approval for
the conversion of the ADC and DRDC into the new company, Dairy
Australia. According to the Minister:

Dairy Australia's membership will include dairy
farmers and peak farmer and processor groups, and it will manage
around $35 million in levy funds and $15 million in matching
Commonwealth R&D contributions every year .This streamlined new
structure will help the dairy industry to capitalise on the
significant changes that have taken place in the industry in recent
years, and ensure Australia maintains its position as one of the
world's leading suppliers of dairy products. It will also mean
dairy farmers have a far greater say in how their levies are
invested.(7)

There has been little adverse comment on the
creation of Dairy Australia. In reporting on Government approval
for the new body, The Land newspaper referred to the view
of 'industry officials' that this would mark 'a new era of direct
industry self-management'.(8) The influential United
Dairyfarmers of Victoria strongly approved of the establishment of
Dairy Australia, noting that Dairyfarmers would have a bigger say
in the future of their industry. President of United Dairyfarmers,
Peter Owen, said that the creation of an industry-owned service
company 'allows us to get on with the job of delivering even better
value on dairyfarmers' levies'.(9)

A telephone helpline(10) has been set
up for dairy farmers with questions about Dairy Australia, together
with a website(11)
providing information about the structure, membership and costs of
joining the new body.

Once established, Dairy Australia would take
over the main functions of the ADC and DRDC, namely research and
development, information, marketing and trade development.
According to the Dairy Australia website,
this would include:

investing in over 300 research and development projects for the
farm and manufacturing sectors

trade policy analysis

promotion of the health and nutritional benefits of dairy
products

provision of industry statistics, and

management of issues such as criticism of dairy products,
environmental concerns etc.(12)

Dairy Australia will also be responsible for
expenditure of levy payments collected from dairy farmers, and for
administration of some dairy assistance programs (see further below
under the heading Dairy Structural Adjustment Fund).

Dairy Australia will comprise voting members
drawn from dairy levy payers (Group A members) and non-voting
members made up of the peak dairy farmer and processor bodies
(Group B members). As the Minister explained in the Second Reading
Speech, details relating to membership will be contained in the
constitution of Dairy Australia and are not dealt with in the
current Bill.(13) However, information on the Dairy
Australia website
includes the following points:

all levy paying dairy farmers will have the right to be Group A
members, but membership will not be compulsory;

the number of votes at company meetings assigned to each dairy
business will be directly linked to the amount of levy the business
has paid in the previous financial year. The rate will be one vote
for every dollar of levy paid; and

the new entity will be a company limited by guarantee, with the
amount of the guarantee set at $2 per member.(14)

The Government has established an interim
advisory board to complete a business plan, constitution and
management structure for Dairy Australia before the intended start
up date of 1 July 2003.(15) Before Dairy Australia is
registered with the Australian Securities and Investment
Commission, the Minister must approve the constitution and the
inaugural directors of the company.(16)

The Department of Agriculture, Fisheries and
Forestry (AFFA) collects levies from dairy businesses under the
auspices of the Primary Industries Levies and Charges
Collection Act 1991. The levies are paid to AFFA by milk
processors who subtract an equivalent amount from the price paid to
dairy farmers for milk.(17)

There are three existing levies payable by dairy
businesses:

the Corporation levy;

the research levy; and

the promotion levy.

At present, AFFA passes the Corporation levy and
promotion levy to ADC and the research levy to DRDC.

The cognate Bill the Primary Industries (Excise)
Levies Amendment (Dairy) Bill 2003 will combine these 3 levies into
a single 'dairy service levy'. This will be payable in the same
fashion and will initially be set at the current total rate for the
existing levies approximately $0.32 per litre.(18) A
funding agreement will be established which will oblige the
Commonwealth to pass on the amount collected from the dairy service
levy to Dairy Australia, less certain Commonwealth
costs.(19)

The Minister has said that the Government will
provide Dairy Australia members with the right to vote on the rate
of the dairy service levy that funds the company:

I believe it is important that all levy payers
have a say in how much they will pay As well as being fair and
equitable, this will help ensure greater accountability by Dairy
Australia to its members, and guarantee a company that is in tune
with their needs and aspirations.(20)

The Dairy Australia website(21)
explains that all levy payers will be able to vote on the levy
rate, not only those who choose to become members of the company.
It is expected that levy payers will be able to vote at least every
three years on the size of the levy required to fund Dairy
Australia's operations. The voting entitlement for each dairy
business will be the same as for members voting at general meetings
of the company, ie one vote for every levy dollar paid in the
previous financial year. Following the vote by levy payers, the
Commonwealth Government will set the rate for the 'dairy service
levy' after receiving a recommendation from the Dairy Australia
Board.

The Minister explained in the Second Reading
Speech that Dairy Australia will only receive funds from the dairy
service levy and matching contributions from the Commonwealth so
long as it remains accountable for such funds to both levy payers
and the Parliament. The Commonwealth will ensure through the
funding agreement with Dairy Australia that planning and reporting
requirements beyond the obligations in the Corporations Act are
adhered to by Dairy Australia.(22)

As the Explanatory Memorandum notes, following
deregulation of State regulated farm-gate milk prices on 1 July
2000, the Commonwealth made available to dairy producers a package
of financial assistance, comprising:

the Dairy Structural Adjustment Program

the Dairy Exit Program, and

the Dairy Regional Assistance Program.

Various forms of financial assistance are
provided under these programs to help dairy producers and the
regions in which they are located adjust to the impact of
deregulation.

Dairy Australia will take over ADC's role in
administering the Dairy Structural Assistance Fund (DSAF) from
which payments for the above programs are made. The DSAF is funded
by a levy of 11c per litre on retail sales of milk. Dairy Australia
will act as 'trustee' of the DSAF and will hold the assets of the
DSAF on trust for the purpose of assistance payments. Dairy
Australia must report annually to the Minister on the
administration of the DSAF, and these reports must be tabled in
Parliament.(23)

In relation to the levy on retail milk sales, it
was initially expected that the levy would be in place 'over a
target period of up to eight years'.(24) That is the
levy would cease by the end of 2007-08. When the Supplementary
Dairy Assistance Scheme was introduced the Government advised this
measure would be funded by extending the existing levy on sales of
drinking milk products into the year 2008-09. The Minister said in
his Second Reading Speech that it is estimated that the levy would
be in place for an additional period of at least seven months and
perhaps 10 months .(25)

However, in November 2002 the Review of
the Dairy Adjustment Levy by the Dairy Adjustment Authority has
recommended, based on currently available data, that the levy
continue until the first quarter of calendar year 2010 with a
further review in 2006-07.(26)

Current administration of the Dairy Regional
Assistance Program has been criticised by the ALP. The Shadow
Minister for Primary Industries and Resources, Senator Kerry
O'Brien, said in January 2003 that 'the distribution of DRAP
funding is heavily skewed in favour of a small number of Coalition
MPs at the expense of many other regions affected by dairy
deregulation'.(27) The office of the Minister was
reported as stating in response that the program was 'completely
transparent' and delivered new jobs to areas hard hit by dairy
deregulation.(28)

Parts 2 4 deal with the
provision of levy information to the ADC, the 'privatisation' of
the ADC and DRDC and other related matters. Essentially, the
intention is that the ADC will apply to be registered as Dairy
Australia whereas the DRDC will transfer all assets and liabilities
and employees, etc to the new company.

Part 2 deals with the
provision of levy information to the ADC

Clause 7 authorises the ADC to
obtain names, addresses, contact details and ABNs of dairy farmers
from any purchaser of the farmer's dairy products. This is 'to
ensure that as many dairy farmers as possible are given appropriate
information about the restructuring effected by the Bill and to
encourage dairy farmers to become members of Dairy
Australia'.(29)

Schedule 1, items 121-124 amend
the Primary Industries Levies and Charges Collection Act
1991 to authorise AFFA to pass information to Dairy Australia
on levies paid by dairy farmers. This will allow Dairy Australia to
verify which dairy farmers are entitled to membership and the level
of voting rights they should receive.(30)

Division 2 provides for the
registration of ADC as a company limited by guarantee under the
Corporations Act 2001, with the new name 'Dairy Australia Limited'.
The application for registration must be accompanied by the new
company's constitution, which must first be approved in writing by
the Minister.

Clause 14 provides that Dairy
Australia is not to be regarded as a Commonwealth entity 'for the
purposes of a law'. Such provisions are usually included to ensure
that the Commonwealth is not legally responsible for the actions of
a privatised body. However, in the current Bill 'a law' is defined
to mean legislation, regulations or other instruments made by the
Commonwealth, or a State or Territory. This does not exclude common
law litigation against the Commonwealth in relation to actions by
Dairy Australia.

Schedule 1, item 51 amends the
Dairy Produce Act 1986 to stipulate that a 'funding
contract' between Dairy Australia and the Commonwealth must be
concluded before the Minister can declare Dairy Australia to be an
'eligible body' able to receive funds from the dairy service levy
and matching Commonwealth amounts (new section 7).
The funding contract must ensure that dairy service payments are
spent on 'marketing, promotion, strategic policy development,
research and development activities or other activities, for the
benefit of the Australian dairy industry' (new section
5).

Division 3 transfers all the
assets and liabilities of DRDC to Dairy Australia. This includes
the substitution of Dairy Australia for DRDC in any legal
proceedings. The Explanatory Memorandum notes that there is no
similar provision transferring ADC's assets and liabilities because
the legal entity known as the ADC will continue to exist, as a
registered company under the Dairy Australia
name.(31)

All contracts and agreements entered into by
DRDC will be transferred to Dairy Australia (clause
18).

Division 4 of Part 3 deems all
employees of DRDC to be employees of Dairy Australia. There is no
similar provision for ADC employees since they will continue to be
employed by the same legal entity, renamed as Dairy Australia.

Division 4 provides that:

DRDC employees will be transferred to Dairy Australia on the
same terms and conditions

accrued entitlements of DRDC employees are unaffected by their
transfer to Dairy Australia

accrued rights of DRDC and ADC employees to compensation under
the Safety, Rehabilitation and Compensation Act 1988 are
expressly continued

accrued rights to maternity leave are not affected by the
transfer to Dairy Australia, and

DRDC and ADC employees retain accrued long service leave rights
on transfer to Dairy Australia.

The Explanatory Memorandum notes that since
Dairy Australia will be a private company, former ADC and DRDC
employees will no longer be entitled to contribute to Commonwealth
superannuation schemes.(32)

A key issue in the privatisation of government
owned entities is the shift from the 'public' accountability
requirements under legislation such as the Commonwealth
Authorities and Companies Act1997 ('CAC Act') to the
'private' reporting regime under the Corporations Act.
Instead of CAC Act requirements such as the tabling of annual
reports in Parliament and an obligation to keep the responsible
Minister informed of significant developments, a privatised entity
is 'accountable' through annual financial and directors reports
that are sent to members, tabled at company meetings and lodged
with the Australian Securities and Investment Commission (ASIC).
While reports lodged with ASIC are obtainable by members of the
public, the privatisation process removes the element of enforced
parliamentary scrutiny. In addition, a privatised entity is not
subject to administrative law scrutiny through freedom of
information and judicial review processes.(33)

As noted above, while the provisions of Dairy
Australia's constitution are not included with the current Bill, it
is envisaged that voting power in the new company will be based on
the amount of levy paid by individual members. It follows that
wealthier dairy farmers will have a greater say in the direction of
Dairy Australia, including on key issues such as election of
directors.

Public scrutiny of Dairy Australia's operations
will be important. Dairy Australia will use public funds: the dairy
service levy collected by AFFA and matching Commonwealth payments
for its normal operations, and the DSAF funded by a surcharge on
retail sales of milk for its financial assistance programs. The
concept of a privately controlled body such as Dairy Australia
administering a publicly funded assistance program such as the DSAF
might be questioned, especially given the absence of any
administrative review processes. In relation to the DSAF, however,
the current Bill does require additional accountability to
Parliament.

As noted, the Minister has also foreshadowed
additional accountability obligations in relation to the use of the
dairy service levy and Commonwealth payments for Dairy Australia's
normal activities, to be included in the Statutory Funding
Agreement. Neither the second reading speech nor the Explanatory
Memorandum indicate what additional obligations are to be included
in the Agreement. An earlier example of additional reporting
obligations can be found in the
statutory funding agreement(34) between the
Commonwealth and Australian Wool Services Limited (the privatised
Wool Research and Promotion Organisation).

See eg Nicholas Seddon, Government Contracts Federal, State
and Local 2nd edition, Federation Press, 1999. The
author states that 'documents in the hands of private sector
providers are beyond the reach' of freedom of information
legislation' (p 322). As for availability of judicial review, eg
under the Administrative Decisions (Judicial Review) Act
1977 (Cth), this depends on the contested decision being one
of 'an administrative character made under an enactment'. Seddon
notes that 'traditionally the availability of judicial review has
been about the control of the exercise of public power', although
there is now some recognition, especially in the United Kingdom,
that 'when private bodies are vested with powers that have a public
effect', such bodies may also be subject to judicial review. The
idea that decisions of privatised public bodies might be reviewable
has, however, had little impact in Australia (pp 298 299).

Peter Prince
3 March 2003
Bills Digest Service
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